Earnings Release • Jul 23, 2012
Earnings Release
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Healthcare comparable sales grew by 7%, with a solid sales increase across all businesses and a 22% increase in growth geographies. Currency-comparable order intake increased by 4% year-on-year, with equipment order growth seen at both Imaging Systems and Patient Care & Clinical Informatics. Reported EBITA margin for the quarter was 13.8%.
Consumer Lifestyle sales increased by 3% on a comparable basis. High-single-digit growth in the combined growth businesses, i.e. Personal Care, Health & Wellness and Domestic Appliances, was partly offset by a decline at Lifestyle Entertainment. Reported EBITA margin for the quarter was 7.6% and included a one-time gain on the sale of the Speech Processing business.
Lighting comparable sales increased by 6%, led by double-digit sales growth at Light Sources & Electronics, as well as high-single-digit sales growth at Automotive. LED-based sales grew by 37% year-on-year and now account for 20% of total Lighting sales. Reported EBITA margin for the quarter was 4.6%.
We have completed 56% of our EUR 2 billion share buy-back program since the start of the program in July 2011.
Our multi-year change and performance improvement program Accelerate! is in its second year and we continue to make good progress. We see employees across the company embracing the transformation program, which is positively changing our company culture to become agile and entrepreneurial. We now have many End2End pilot transformation projects, which currently cover over 10% of revenue, forming the basis for further rollout across the rest of the company. The implementation of our granular performance management approach is resulting in accelerated growth and an improved bottom-line.
The actions to deliver on our overhead cost-reduction program are on track. Incremental savings amounted to EUR 176 million in the first half of 2012, and more than 50% of the total TV stranded costs have been taken out. Cumulative savings by the end of 2012 are expected to be approximately EUR 400 million.
The improved performance in the second quarter of 2012 is encouraging proof that our Accelerate! transformation program, and the relentless focus on execution, are enabling us to continue on the path to achieve our 2013 mid-term financial targets.
The initiatives to stimulate growth show promising results, especially in the light of the weaker economic situation. Healthcare sales are growing well at 7%, and order intake showed solid growth, whereby a decline in Europe was more than offset by increases in the rest of the world. The growth businesses in Consumer Lifestyle again performed solidly. At Lighting, LED-based sales showed strong growth momentum. Overall, the cost-saving initiatives are on track, resulting in improved operational performance across the group compared to the previous year.
We are considering various business models for Lifestyle Entertainment to drive more value. As a result, we are happy to announce a distribution agreement for Lifestyle Entertainment in North America and the sale of the Speech Processing business.
There is no denying that the global economy is weaker now than it was just three months ago, especially in Europe which accounts for approximately 25% of our revenue. We continue to take actions to mitigate the risks from the increased economic headwinds globally, and we remain confident in our ability to further improve our performance.
Frans van Houten, CEO of Royal Philips Electronics
Please refer to page 16 of this press release for more information about forward-looking statements, third-party market share data, use of non-GAAP information and use of fair-value measurements.
in millions of euros unless otherwise stated
| Q2 | Q2 | |
|---|---|---|
| 2011 | 2012 | |
| Sales | 5,216 | 5,892 |
| EBITA | 371 | 450 |
| as a % of sales | 7.1 | 7.6 |
| EBIT | (1,123) | 338 |
| as a % of sales | (21.5) | 5.7 |
| Financial income and expenses | (74) | (79) |
| Income taxes | (47) | (89) |
| Results investments in associates | (4) | (10) |
| Income (loss) from continuing operations | (1,248) | 160 |
| Discontinued operations | (97) | 7 |
| Net income (loss) | (1,345) | 167 |
| Net income (loss) - shareholders per common share (in euros) - basic |
(1.39) | 0.18 |
in millions of euros unless otherwise stated
| Q2 | Q2 | % change | ||
|---|---|---|---|---|
| 2011 | 2012 | nominal comparable | ||
| Healthcare | 2,080 | 2,413 | 16 | 7 |
| Consumer Lifestyle |
1,247 | 1,356 | 9 | 3 |
| Lighting | 1,777 | 2,026 | 14 | 6 |
| IG&S | 112 | 97 | (13) | (13) |
| Philips Group | 5,216 | 5,892 | 13 | 5 |
in millions of euros unless otherwise stated
| Q21) | Q2 | % change | ||
|---|---|---|---|---|
| 2011 | 2012 | nominal comparable | ||
| Western Europe | 1,456 | 1,455 | (0) | (4) |
| North America | 1,627 | 1,935 | 19 | 7 |
| Other mature geographies | 404 | 456 | 13 | 2 |
| Total mature geographies | 3,487 | 3,846 | 10 | 2 |
| Growth geographies | 1,729 | 2,046 | 18 | 11 |
| Philips Group | 5,216 | 5,892 | 13 | 5 |
1) Revised to reflect an adjusted market cluster allocation
• Comparable sales in the mature markets grew by 2% compared to Q2 2011, driven by Healthcare and Lighting, while Consumer Lifestyle sales declined.
in millions of euros
| Q2 | Q2 | |
|---|---|---|
| 2011 | 2012 | |
| Healthcare | 276 | 333 |
| Consumer Lifestyle | 26 | 103 |
| Lighting | 101 | 93 |
| Innovation, Group & Services | (32) | (79) |
| Philips Group | 371 | 450 |
as a % of sales
| Q2 | Q2 | |
|---|---|---|
| 2011 | 2012 | |
| Healthcare | 13.3 | 13.8 |
| Consumer Lifestyle | 2.1 | 7.6 |
| Lighting | 5.7 | 4.6 |
| Innovation, Group & Services | (28.6) | (81.4) |
| Philips Group | 7.1 | 7.6 |
in millions of euros
| Q2 | Q2 | |
|---|---|---|
| 2011 | 2012 | |
| Healthcare | 1 | (8) |
| Consumer Lifestyle | (13) | (13) |
| Lighting | (14) | (38) |
| Innovation, Group & Services | 2 | (40) |
| Philips Group | (24) | (99) |
in millions of euros unless otherwise stated
| Q2 | Q2 | |
|---|---|---|
| 2011 | 2012 | |
| Healthcare | (611) | 284 |
| Consumer Lifestyle | (9) | 86 |
| Lighting | (470) | 49 |
| Innovation, Group & Services | (33) | (81) |
| Philips Group | (1,123) | 338 |
| as a % of sales | (21.5) | 5.7 |
• Growth geographies showed 11% comparable growth, predominantly driven by Healthcare and Consumer Lifestyle.
| Q2 | Q2 |
|---|---|
| 2011 | 2012 |
| (48) | (65) |
| 4 | (2) |
| (30) | (12) |
| (74) | (79) |
in millions of euros
| Q2 | Q2 | |
|---|---|---|
| 2011 | 2012 | |
| Beginning cash balance | 4,772 | 4,225 |
| Free cash flow | (180) | (211) |
| Net cash flow from operating activities | 631) | 52 |
| Net capital expenditures | (243)1) | (263) |
| Acquisitions and divestments of businesses |
(136) | 41 |
| Other cash flow from investing activities | 35 | (23) |
| Treasury shares transactions | 45 | (288) |
| Dividend paid | (259) | (256) |
| Changes in debt/other | (839) | (276) |
| Net cash flow discontinued operations | (178) | (78) |
| Ending balance | 3,260 | 3,134 |
1) Revised to reflect an adjusted allocation of capital expenditures on property, plant and equipment
in millions of euros
1) Revised to reflect an adjusted allocation of capital expenditures on property, plant and equipment
• Financial income and expenses amounted to a net expense of EUR 79 million, EUR 5 million higher than in Q2 2011. Last year included a fair-value gain on the option related to NXP and a negative value adjustment in respect of available-for-sale financial assets.
• Operating activities resulted in a cash inflow of EUR 52 million, compared to an inflow of EUR 63 million in Q2 2011. The Q2 2012 figure includes a net increase in working capital requirements of EUR 366 million, compared to EUR 213 million in Q1 2012. The higher working capital outflow was largely offset by higher earnings, lower non-current liabilities and increased provisions.
in millions of euros
1) Capital expenditures on property, plant and equipment only 2) Revised to reflect an adjusted allocation of capital expenditures on property, plant and equipment
as a % of moving annual total sales
• Gross capital expenditures on property, plant and equipment were EUR 11 million higherthan in Q2 2011, mainly due to higher investments at Lighting and Consumer Lifestyle.
in FTEs
operations, comprising the Television business, employed at end of Q2 2011 3,506.
2) Adjusted to reflect a change of employees reported in the Healthcare sector
in millions of euros unless otherwise stated
| Q2 | Q2 | |
|---|---|---|
| 2011 | 2012 | |
| Sales | 2,080 | 2,413 |
| Sales growth | ||
| % nominal | 1 | 16 |
| % comparable | 8 | 7 |
| EBITA | 276 | 333 |
| as a % of sales | 13.3 | 13.8 |
| EBIT | (611) | 284 |
| as a % of sales | (29.4) | 11.8 |
| Net operating capital (NOC) | 7,534 | 8,542 |
| Number of employees (FTEs) | 37,3511) | 37,887 |
1) Adjusted to reflect a change of reported employees
• Currency-comparable equipment orderintake grew 4% year-on-year. Equipment order growth was seen at both Imaging Systems and Patient Care & Clinical Informatics. Equipment orders in North American markets were 3% lower than in Q2 2011, while orders in Western Europe declined by 6%. Equipment orders in growth geographies were 13% higher, while equipment orders in Japan showed strong double-digit growth.
• Restructuring and acquisition-related charges in Q3 2012 are expected to total approximately EUR 15 million.
in millions of euros unless otherwise stated
| Q2 | Q2 | |
|---|---|---|
| 2011 | 2012 | |
| Sales | 1,247 | 1,356 |
| Sales growth | ||
| % nominal | (2) | 9 |
| % comparable | (0) | 3 |
| EBITA | 26 | 103 |
| as a % of sales | 2.1 | 7.6 |
| EBIT | (9) | 86 |
| as a % of sales | (0.7) | 6.3 |
| Net operating capital (NOC) | 1,428 | 1,546 |
| Number of employees (FTEs) | 17,026 | 19,277 |
in millions of euros
EBITA
Excluding restructuring and acquisition-related charges of EUR 13 million in both Q2 2011 and Q2 2012 and the EUR 20 million gain on the Speech Processing business transaction in Q2 2012, EBITA margin increased from 3.1% to 7.1%. EBITA improvement was driven by higher earnings across all businesses and by lower net costs formerly reported as part of the Television business.
Working capital as a percentage of the last twelve months' sales improved from 6% to 2%, largely driven by lower accounts receivable related to the former Television business in Consumer Lifestyle. Net operating capital increased by EUR 118 million, mainly due to the consolidation of the Povos acquisition offsetting the working capital improvement.
• Restructuring and acquisition-related charges in Q3 2012 are expected to total approximately EUR 15 million.
in millions of euros unless otherwise stated
| Q2 | Q2 | |
|---|---|---|
| 2011 | 2012 | |
| Sales | 1,777 | 2,026 |
| Sales growth | ||
| % nominal | (4) | 14 |
| % comparable | 4 | 6 |
| EBITA | 101 | 93 |
| as a % of sales | 5.7 | 4.6 |
| EBIT | (470) | 49 |
| as a % of sales | (26.4) | 2.4 |
| Net operating capital (NOC) | 5,021 | 5,343 |
| Number of employees (FTEs) | 54,728 | 52,749 |
in millions of euros
EBITA
in millions of euros unless otherwise stated
| Q2 | Q2 | |
|---|---|---|
| 2011 | 2012 | |
| Sales | 112 | 97 |
| Sales growth | ||
| % nominal | (27) | (13) |
| % comparable | (7) | (13) |
| EBITA Group Innovation | (6) | (33) |
| EBITA IP Royalties | 50 | 35 |
| EBITA Group and Regional Costs | (29) | (28) |
| EBITA Accelerate! investment | − | (34) |
| EBITA Pensions | (12) | 31 |
| EBITA Service Units and Other | (35) | (50) |
| EBITA | (32) | (79) |
| EBIT | (33) | (81) |
| Net operating capital (NOC) | (2,681)1) | (3,900) |
| Number of employees (FTEs) | 12,128 | 11,888 |
1) Revised to reflect an adjusted property, plant and equipment reclassification to assets classified as held for sale
Sales
in millions of euros
EBITA
in millions of euros
• Net operating capital decreased by EUR 1.2 billion yearon-year, mainly due to an increase in net pension liabilities in Q4 2011 as well as a decrease in the value of currency hedges held at Group level.
• Restructuring charges in Q3 2012 are expected to total approximately EUR 15 million.
This document contains certain forward-looking statements with respect to the financial condition, results of operations and business of Philips and certain of the plans and objectives of Philips with respect to these items, in particular the sector sections "Miscellaneous". Examples of forward-looking statements include statements made about our strategy, estimates of sales growth, future EBITA and future developments in our organic business. Forward-looking statements can be identified generally as those containing words such as "anticipates", assumes", "believes", "estimates", "expects", "should", "will likely result", "forecast", "outlook", "projects", "may" or similar expressions. By their nature, these statementsinvolve risk and uncertainty because they relate to future events and circumstances and there are many factors that could cause actual results and developments to differ materially from those expressed or implied by these statements. These factors include but are not limited to domestic and global economic and business conditions, the successful implementation of our strategy and our ability to realize the benefits of this strategy, our ability to develop and market new products, changes in legislation, legal claims, changes in exchange and interest rates, changes in tax rates, pension costs and actuarial assumptions, raw materials and employee costs, our ability to identify and complete successful acquisitions and to integrate those acquisitions into our business, our ability to successfully exit certain businesses or restructure our operations, the rate of technological changes, political, economic and other developments in countries where Philips operates, industry consolidation and competition. As a result, Philips' actual future results may differ materially from the plans, goals and expectations set forth in such forwardlooking statements. For a discussion of factors that could cause future results to differ from such forward-looking statements, see the Risk management chapter included in our Annual Report 2011 and the "Risk and uncertainties" section in our semi-annual financial report for the six months ended July 1, 2012.
Statements regarding market share, including those regarding Philips' competitive position, contained in this document are based on outside sources such as research institutes, industry and dealer panels in combination with management estimates. Where information is not yet available to Philips, those statements may also be based on estimates and projections prepared by outside sources or management. Rankings are based on sales unless
In presenting and discussing the Philips Group's financial position, operating results and cash flows, management uses certain non-GAAP financial measures. These non-GAAP financial measures should not be viewed in isolation as alternatives to the equivalent IFRS measures and should be used in conjunction with the most directly comparable IFRS measures. A reconciliation of such measures to the most directly comparable IFRS measures is contained in this document. Further information on non-GAAP measures can be found in our Annual Report 2011.
In presenting the Philips Group's financial position, fair values are used for the measurement of various items in accordance with the applicable accounting standards. These fair values are based on market prices, where available, and are obtained from sources that are deemed to be reliable. Readers are cautioned that these values are subject to changes over time and are only valid at the balance sheet date. When quoted prices or observable market data do not exist, we estimated the fair values using appropriate valuation models and unobservable inputs. They require management to make significant assumptions with respect to future developments, which are inherently uncertain and may therefore deviate from actual developments. Critical assumptions used are disclosed in our 2011 financial statements. Independent valuations may have been obtained to support management's determination of fair values.
All amounts in millions of euros unless otherwise stated; data included are unaudited. Financial reporting is in accordance with IFRS, unless otherwise stated. This document comprises regulated information within the meaning of the Dutch Financial Markets Supervision Act 'Wet op het Financieel Toezicht'.
Introduction
This report contains the semi-annual financial report of Koninklijke Philips Electronics N.V. ('the Company'), a company with limited liability, headquartered in Amsterdam, the Netherlands. The principal activities of the Company and its group companies (the Group) are described in note 4, Segment information.
The semi-annual financial report for the six months ended July 1, 2012 consists of the condensed consolidated semiannual financial statements, the semi-annual management report and responsibility statement by the Company's Board of Management. The information in this semiannual financial report is unaudited.
The condensed consolidated semi-annual financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Company's consolidated IFRS financial statements for the year ended December 31, 2011.
The Board of Management of the Company hereby declares that to the best of their knowledge, the semiannual financial statements, which have been prepared in accordance with the applicable financial reporting standards for interim financial reporting, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole, and the semi-annual management report gives a fair review of the information required pursuant to section 5:25d(8)/(9) of the Dutch Financial Markets Supervision Act (Wet op het Financieel toezicht).
Amsterdam, July 23, 2012
Board of Management
Frans van Houten Ron Wirahadiraksa Pieter Nota
in millions of euros unless otherwise stated
| January to June | ||
|---|---|---|
| 2011 | 2012 | |
| Sales | 10,473 | 11,500 |
| EBITA | 809 | 1,002 |
| as a % of sales | 7.7 | 8.7 |
| EBIT | (804) | 776 |
| as a % of sales | (7.7) | 6.7 |
| Financial income and expenses | (76) | (133) |
| Income taxes | (140) | (185) |
| Results investments in associates | 2 | (16) |
| Income (loss) from continuing operations | (1,018) | 442 |
| Discontinued operations | (189) | (26) |
| Net income (loss) | (1,207) | 416 |
| Net income (loss) - shareholders per common share (in euros) - basic |
(1.26) | 0.45 |
in millions of euros unless otherwise stated
| January to June | % change | |||
|---|---|---|---|---|
| 2011 | 2012 | nominal comparable | ||
| Healthcare | 4,051 | 4,622 | 14 | 8 |
| Consumer Lifestyle |
2,496 | 2,642 | 6 | 1 |
| Lighting | 3,680 | 4,041 | 10 | 4 |
| IG&S | 246 | 195 | (21) | (9) |
| Philips Group | 10,473 | 11,500 | 10 | 5 |
in millions of euros
| January to June | ||||
|---|---|---|---|---|
| 2011 2012 |
||||
| Healthcare | 475 | 558 | ||
| Consumer Lifestyle | 105 | 362 | ||
| Lighting | 294 | 154 | ||
| Innovation, Group & Services | (65) | (72) | ||
| Philips Group | 809 | 1,002 |
as a % of sales
| January to June | ||||
|---|---|---|---|---|
| 2011 2012 |
||||
| Healthcare | 11.7 | 12.1 | ||
| Consumer Lifestyle | 4.2 | 13.7 | ||
| Lighting | 8.0 | 3.8 | ||
| Innovation, Group & Services | − | − | ||
| Philips Group | 7.7 | 8.7 |
• Sales in the first half of 2012 amounted to EUR 4,041 million, an increase of 4% on a comparable basis. Strong mid-single-digit growth in growth geographies was tempered by low-single-digit growth in mature geographies.
• EBITA decreased by EUR 140 million compared to the first half of 2011, mainly due to gross margin pressures and operational issues in the Lumileds and Consumer Luminaires businesses. Earnings included restructuring and acquisition-related charges of EUR 62 million and a EUR 25 million one-time loss on a sale of assets, compared to EUR 19 million of restructuring and acquisition-related charges in the first half of 2011.
• EBITA amounted to a net cost of EUR 72 million, a decrease of EUR 7 million year-on-year, as investments related to the Accelerate! program and lower license revenues were partially offset by a EUR 37 million gain on the High Tech Campus real estate transaction and a EUR 25 million one-time gain of prior service cost related to a medical retiree benefit plan.
In our Annual Report 2011 we extensively described certain risk categories and risk factors which could have a material adverse effect on our financial position and results. Those risk categories and risk factors are deemed incorporated and repeated in this report by reference.
Additional risks not known to us, or currently believed not to be material, could later turn out to have a material impact on our businesses, objectives, revenues, income, assets, liquidity or capital resources.
all amounts in millions of euros unless otherwise stated
| 2nd quarter | January to June | |||
|---|---|---|---|---|
| 2011 | 2012 | 2011 | 2012 | |
| Sales | 5,216 | 5,892 | 10,473 | 11,500 |
| Cost of sales1) | (3,170) | (3,641) | (6,315) | (7,135) |
| Gross margin | 2,046 | 2,251 | 4,158 | 4,365 |
| Selling expenses1) | (1,233) | (1,355) | (2,440) | (2,580) |
| General and administrative expenses | (221) | (138) | (430) | (326) |
| Research and development expenses | (382) | (437) | (772) | (880) |
| Impairment of goodwill | (1,355) | − | (1,355) | − |
| Other business income | 38 | 38 | 59 | 253 |
| Other business expenses | (16) | (21) | (24) | (56) |
| Income (loss) from operations | (1,123) | 338 | (804) | 776 |
| Financial income | 15 | 12 | 106 | 49 |
| Financial expenses | (89) | (91) | (182) | (182) |
| Income (loss) before taxes | (1,197) | 259 | (880) | 643 |
| Income tax expense | (47) | (89) | (140) | (185) |
| Income (loss) after taxes | (1,244) | 170 | (1,020) | 458 |
| Results relating to investments in associates | (4) | (10) | 2 | (16) |
| Net income (loss) from continuing operations | (1,248) | 160 | (1,018) | 442 |
| Discontinued operations - net of income tax | (97) | 7 | (189) | (26) |
| Net income (loss) | (1,345) | 167 | (1,207) | 416 |
| Attribution of net income for the period | ||||
| Net income (loss) attributable to shareholders | (1,344) | 167 | (1,207) | 415 |
| Net income (loss) attributable to non-controlling interests | (1) | − | − | 1 |
| Weighted average number of common shares outstanding (after deduction of treasury shares) during the period (in thousands): |
||||
| - basic | 964,9162) | 922,589 | 956,3372) | 922,764 |
| - diluted | 971,2912) | 926,695 | 963,6802) | 926,296 |
| Net income (loss) attributable to shareholders per common share in euros: | ||||
| - basic | (1.39) | 0.18 | (1.26) | 0.45 |
| - diluted3) | (1.39) | 0.18 | (1.26) | 0.45 |
| Ratios | ||||
| Gross margin as a % of sales | 39.2 | 38.2 | 39.7 | 38.0 |
| Selling expenses as a % of sales | (23.6) | (23.0) | (23.3) | (22.4) |
| G&A expenses as a % of sales | (4.2) | (2.3) | (4.1) | (2.8) |
| R&D expenses as a % of sales | (7.3) | (7.4) | (7.4) | (7.7) |
| EBIT | (1,123) | 338 | (804) | 776 |
| as a % of sales | (21.5) | 5.7 | (7.7) | 6.7 |
| EBITA as a % of sales |
371 7.1 |
450 7.6 |
809 7.7 |
1,002 8.7 |
1) Two accounting policy changes have been implemented as of 2012. Warranty costs, previously reported in Selling expenses on the income statement, have been reclassified to Cost of sales. The change follows the rationale that warranty costs are an integral part of the sale of goods and services. Amortization of brand name and customer relationship intangible assets, previously reported in Cost of sales on the income statement, has been reclassified to Selling expenses. As a consequence 2011 figures have been restated.
2) Adjusted to make 2011 comparable for the bonus shares (889 thousand) issued in May 2012
3) The incremental shares from assumed conversion are not taken into account in the periods for which there is a loss attributable to shareholders, as the effect would be antidilutive
all amounts in millions of euros
| 2nd quarter | January to June | |||
|---|---|---|---|---|
| 2011 | 2012 | 2011 | 2012 | |
| Net income (loss) for the period: | (1,345) | 167 | (1,207) | 416 |
| Other comprehensive income: | ||||
| Actuarial losses and changes in the effect of the asset ceiling on pension plans: | ||||
| Net current period change, before tax | − | (78) | − | (161) |
| Income tax on net current period change | (1) | 19 | (3) | 34 |
| Revaluation reserve: | ||||
| Release revaluation reserve | (4) | (4) | (8) | (8) |
| Reclassification into retained earnings | 4 | 4 | 8 | 8 |
| Currency translation differences: | ||||
| Net current period change, before tax | (112) | 327 | (451) | 172 |
| Income tax on net current period change | − | − | 3 | (2) |
| Reclassification adjustment for (income) loss realized | 3 | (3) | 3 | (1) |
| Available-for-sale financial assets: | ||||
| Net current period change, before tax | (19) | 1 | (42) | 4 |
| Income tax on net current period change | 13 | − | 13 | (1) |
| Reclassification adjustment for (income) loss realized | 11 | − | (47) | − |
| Cash flow hedges: | ||||
| Net current period change, before tax | (15) | (42) | (23) | (26) |
| Income tax on net current period change | 3 | 10 | 2 | 6 |
| Reclassification adjustment for loss realized | 1 | 10 | 6 | 8 |
| Other comprehensive (income) loss for the period | (116) | 244 | (539) | 33 |
| Total comprehensive income (loss) for the period | (1,461) | 411 | (1,746) | 449 |
| Total comprehensive income (loss) attributable to: | ||||
| Shareholders | (1,460) | 424 | (1,746) | 448 |
| Non-controlling interests | (1) | − | − | 1 |
in millions of euros unless otherwise stated
| July 3, | December 31, | July 1, | |
|---|---|---|---|
| 2011 | 2011 | 2012 | |
| Non-current assets: | |||
| Property, plant and equipment | 2,866 | 3,014 | 3,040 |
| Goodwill | 6,180 | 7,016 | 7,290 |
| Intangible assets excluding goodwill | 3,796 | 3,996 | 4,061 |
| Non-current receivables | 102 | 127 | 148 |
| Investments in associates | 164 | 203 | 203 |
| Other non-current financial assets | 367 | 346 | 576 |
| Deferred tax assets | 1,304 | 1,713 | 1,792 |
| Other non-current assets | 210 | 71 | 77 |
| Total non-current assets | 14,989 | 16,486 | 17,187 |
| Current assets: | |||
| Inventories - net | 3,760 | 3,625 | 3,973 |
| Other current financial assets | 3 | − | − |
| Other current assets | 419 | 351 | 418 |
| Derivative financial assets | 137 | 229 | 172 |
| Income tax receivable | 108 | 162 | 137 |
| Receivables | 3,850 | 4,415 | 4,140 |
| Assets classified as held for sale | 614 | 551 | 48 |
| Cash and cash equivalents | 3,260 | 3,147 | 3,134 |
| Total current assets | 12,151 | 12,480 | 12,022 |
| Total assets | 27,140 | 28,966 | 29,209 |
| Shareholders' equity | 13,086 | 12,355 | 12,142 |
| Non-controlling interests | 30 | 34 | 35 |
| Group equity | 13,116 | 12,389 | 12,177 |
| Non-current liabilities: | |||
| Long-term debt | 2,703 | 3,278 | 4,123 |
| Long-term provisions | 1,687 | 1,880 | 1,877 |
| Deferred tax liabilities | 55 | 77 | 153 |
| Other non-current liabilities | 1,616 | 1,999 | 1,958 |
| Total non-current liabilities | 6,061 | 7,234 | 8,111 |
| Current liabilities: | |||
| Short-term debt | 713 | 582 | 777 |
| Derivative financial liabilities | 310 | 744 | 845 |
| Income tax payable | 206 | 191 | 149 |
| Accounts and notes payable Accrued liabilities |
2,585 2,601 |
3,346 3,026 |
2,717 2,990 |
| Short-term provisions | 527 | 759 | 663 |
| Liabilities directly associated with assets held for sale Other current liabilities |
427 594 |
61 634 |
53 727 |
| Total current liabilities | 7,963 | 9,343 | 8,921 |
| Total liabilities and group equity | 27,140 | 28,966 | 29,209 |
| July 3, | December 31, | July 1, | |
|---|---|---|---|
| 2011 | 2011 | 2012 | |
| Number of common shares outstanding (after deduction of treasury shares) at the end of period (in thousands) |
972,436 | 926,095 | 931,391 |
| Ratios | |||
| Shareholders' equity per common share in euros | 13.46 | 13.34 | 13.04 |
| Inventories as a % of sales | 16.8 | 16.1 | 16.8 |
| Net debt : group equity | 1:99 | 5:95 | 13:87 |
| Net operating capital | 11,302 | 10,427 | 11,531 |
| Employees at end of period | 124,738 | 125,241 | 121,801 |
| of which discontinued operations | 3,506 | 3,353 | − |
all amounts in millions of euros
| 2nd quarter | January to June | ||||
|---|---|---|---|---|---|
| 2011 | 2012 | 2011 | 2012 | ||
| Cash flows from operating activities: | |||||
| Net income (loss) | (1,345) | 167 | (1,207) | 416 | |
| (Income) loss from discontinued operations | 97 | (7) | 189 | 26 | |
| Adjustments to reconcile net income to net cash provided by (used for) operating activities: | |||||
| Depreciation and amortization | 3501) | 343 | 6711) | 687 | |
| Impairment of goodwill and other non-current financial assets | 1,366 | 3 | 1,366 | 3 | |
| Net gain on sale of assets | (9) | (30) | (64) | (213) | |
| (Income) loss from investments in associates | 4 | 6 | (2) | 9 | |
| Dividends received from investments in associates | 7 | 7 | 23 | 7 | |
| Dividends paid to non-controlling interests | (1) | − | (1) | − | |
| Decrease in working capital: | (213) | (366) | (1,063) | (416) | |
| Decrease (increase) in receivables and other current assets | (40) | (216) | 34 | 9 | |
| Increase in inventories | (254) | (27) | (452) | (247) | |
| Increase (decrease) in accounts payable, accrued and other liabilities | 81 | (123) | (645) | (178) | |
| Increase in non-current receivables, other assets and other liabilities | (145) | (108) | (275) | (259) | |
| (Decrease) increase in provisions | (34) | 35 | (81) | 58 | |
| Other items | (14)1) | 2 | 141) | 65 | |
| Net cash provided by (used for) operating activities | 63 | 52 | (430) | 383 | |
| Cash flows from investing activities: | |||||
| Purchase of intangible assets | (17) | (21) | (65) | (40) | |
| Proceeds from sale of intangible assets | − | − | − | 160 | |
| Expenditures on development assets | (69) | (75) | (119) | (139) | |
| Capital expenditures on property, plant and equipment | (178)1) | (189) | (339)1) | (343) | |
| Proceeds from disposals of property, plant and equipment | 21 | 22 | 56 | 410 | |
| Cash from (to) derivatives and securities | 33 | (21) | 52 | (45) | |
| Purchase of other non-current financial assets | − | (2) | (6) | (154) | |
| Proceeds from other non-current financial assets | 2 | − | 89 | − | |
| Purchase of businesses, net of cash acquired | (132) | 11 | (190) | (230) | |
| Proceeds from sale of interests in businesses, net of cash disposed of | (4) | 30 | − | 41 | |
| Net cash used for investing activities | (344) | (245) | (522) | (340) | |
| Cash flows from financing activities: | |||||
| Proceeds from issuance of (payments on) short-term debt | (189) | 147 | (71) | 188 | |
| Principal payments on long-term debt | (766) | (459) | (1,052) | (483) | |
| Proceeds from issuance of long-term debt | 97 | 34 | 121 | 1,171 | |
| Treasury shares transactions | 45 | (288) | 62 | (442) | |
| Dividends paid | (259) | (256) | (259) | (256) | |
| Net cash (used for) provided by financing activities | (1,072) | (822) | (1,199) | 178 | |
| Net cash (used for) provided by continuing operations | (1,353) | (1,015) | (2,151) | 221 | |
| Cash flow from discontinued operations: | |||||
| Net cash provided by (used for) operating activities | (159) | (229) | (360) | (201) | |
| Net cash (used for) provided by investing activities | (19) | 151 | (45) | 3 | |
| Net cash used for discontinued operations | (178) | (78) | (405) | (198) | |
| Net cash provided by (used for) continuing and discontinued operations | (1,531) | (1,093) | (2,556) | 23 |
| 2nd quarter | January to June | ||||
|---|---|---|---|---|---|
| 2011 | 2012 | 2011 | 2012 | ||
| Effect of change in exchange rates on cash and cash equivalent | 19 | 2 | (17) | (36) | |
| Cash and cash equivalents at the beginning of the period | 4,772 | 4,225 | 5,833 | 3,147 | |
| Cash and cash equivalents at the end of the period | 3,260 | 3,134 | 3,260 | 3,134 | |
| Ratio | |||||
| Cash flows before financing activities | (281) | (193) | (952) | 43 | |
| Net cash paid during the period for | |||||
| Pensions | (132) | (147) | (365) | (341) | |
| Interest | (58) | (32) | (136) | (108) | |
| Income taxes | (96) | (102) | (281) | (183) |
For a number of reasons, principally the effects of translation differences, certain items in the statements of cash flows do not correspond to the differences between the balance sheet amounts for the respective items.
1) Revised to reflect an adjusted allocation of capital expenditures on property, plant and equipment
in millions of euros
| other reserves | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| com mon shares |
capital in ex cess of par val ue |
re tained earn ings |
revalu ation re serve |
curren cy transla tion dif feren ces |
unreal ized gain (loss) on available for-sale financial assets |
changes in fair value of cash flow hedges |
total | treas ury shares at cost |
total share hold ers' equity |
non con trolling inter ests |
total equity |
|
| January to June 2012 | ||||||||||||
| Balance as of December 31, 2011 | 202 | 813 | 12,917 | 70 | 7 | 45 | (9) | 43 | (1,690) 12,355 | 34 | 12,389 | |
| Total comprehensive income | 296 | (8) | 169 | 3 | (12) | 160 | 448 | 1 | 449 | |||
| Dividend distributed | 6 | 422 | (687) | (259) | − | (259) | ||||||
| Movement non-controlling interest | − | − | − | − | ||||||||
| Purchase of treasury shares | (47) | (416) | (463) | (463) | ||||||||
| Re-issuance of treasury shares | (19) | (20) | 60 | 21 | 21 | |||||||
| Share-based compensation plans | 41 | 41 | 41 | |||||||||
| Income tax share-based compensation plans |
(1) | (1) | (1) | |||||||||
| 6 | 443 | (754) | (356) | (661) | − | (661) | ||||||
| Balance as of July 1, 2012 | 208 | 1,256 | 12,459 | 62 | 176 | 48 | (21) | 203 | (2,046) 12,142 | 35 | 12,177 | |
| January to June 2011 | ||||||||||||
| Balance as of December 31, 2010 | 197 | 354 | 15,416 | 86 | (65) | 139 | (5) | 69 | (1,076) 15,046 | 46 | 15,092 | |
| Total comprehensive income | (1,202) | (8) | (445) | (76) | (15) | (536) | (1,746) | − | (1,746) | |||
| Dividend distributed | 5 | 443 | (711) | (263) | (263) | |||||||
| Movement non-controlling interest | (5) | (5) | (16) | (21) | ||||||||
| Re-issuance of treasury shares | (32) | (2) | 63 | 29 | 29 | |||||||
| Share-based compensation plans | 28 | 28 | 28 | |||||||||
| Income tax share-based compensation plans |
(3) | (3) | (3) | |||||||||
| 5 | 436 | (718) | 63 | (214) | (16) | (230) | ||||||
| Balance as of July 3, 2011 | 202 | 790 | 13,496 | 78 | (510) | 63 | (20) | (467) | (1,013) 13,086 | 30 | 13,116 | |
As of 2012 we have implemented an accounting policy change. IP royalties on products sold by a sector were allocated to that sector, with the exception of sector Consumer Lifestyle. At sector Consumer Lifestyle IP royalties on products no longer sold by the sector were allocated to Consumer Lifestyle itself. As of 2012, all IP royalties on products no longer sold by a sector have been allocated to sector Innovation, Group & Services. As a consequence 2011 figures have been restated.
| 2nd quarter | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| 2011 | 2012 | ||||||||
| sales including inter company |
sales | income from operations | sales including inter company |
sales | income from operations | ||||
| amount | as a % of sales |
amount | as a % of sales |
||||||
| Healthcare | 2,083 | 2,080 | (611) | (29.4) | 2,418 | 2,413 | 284 | 11.8 | |
| Consumer Lifestyle | 1,250 | 1,247 | (9) | (0.7) | 1,359 | 1,356 | 86 | 6.3 | |
| Lighting | 1,779 | 1,777 | (470) | (26.4) | 2,031 | 2,026 | 49 | 2.4 | |
| Innovation, Group & Services | 175 | 112 | (33) | − | 159 | 97 | (81) | − | |
| Inter-sector eliminations | (71) | (75) | |||||||
| 5,216 | 5,216 | (1,123) | (21.5) | 5,892 | 5,892 | 338 | 5.7 |
| January to June | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| 2011 | 2012 | ||||||||
| sales including inter company sales income from operations |
sales including inter company |
sales | income from operations | ||||||
| amount | as a % of sales |
amount | as a % of sales |
||||||
| Healthcare | 4,058 | 4,051 | (473) | (11.7) | 4,633 | 4,622 | 459 | 9.9 | |
| Consumer Lifestyle | 2,501 | 2,496 | 55 | 2.2 | 2,649 | 2,642 | 327 | 12.4 | |
| Lighting | 3,683 | 3,680 | (318) | (8.6) | 4,050 | 4,041 | 66 | 1.6 | |
| Innovation, Group & Services | 370 | 246 | (68) | − | 320 | 195 | (76) | − | |
| Inter-sector eliminations | (139) | (152) | |||||||
| 10,473 | 10,473 | (804) | (7.7) | 11,500 | 11,500 | 776 | 6.7 |
in millions of euros
| sales | total assets | |||
|---|---|---|---|---|
| January to June | July 3, | July 1, | ||
| 2011 | 2012 | 2011 | 2012 | |
| Healthcare | 4,051 | 4,622 | 10,297 | 11,760 |
| Consumer Lifestyle | 2,496 | 2,642 | 3,248 | 3,337 |
| Lighting | 3,680 | 4,041 | 6,644 | 7,242 |
| Innovation, Group & Services | 246 | 195 | 6,337 | 6,822 |
| 10,473 | 11,500 | 26,526 | 29,161 | |
| Assets classified as held for sale | 614 | 48 | ||
| 27,140 | 29,209 |
| sales | tangible and intangible assets1) | |||||
|---|---|---|---|---|---|---|
| January to June | July 3, | July 1, | ||||
| 20112) | 2012 | 20112) | 2012 | |||
| Netherlands | 335 | 304 | 920 | 894 | ||
| United States | 2,987 | 3,358 | 7,967 | 8,591 | ||
| China | 939 | 1,247 | 639 | 1,169 | ||
| Germany | 642 | 653 | 262 | 261 | ||
| Japan | 479 | 548 | 445 | 625 | ||
| France | 427 | 492 | 102 | 95 | ||
| India | 311 | 365 | 168 | 148 | ||
| Other countries | 4,353 | 4,533 | 2,339 | 2,608 | ||
| 10,473 | 11,500 | 12,842 | 14,391 |
1) Includes property, plant and equipment, intangible assets excluding goodwill, and goodwill
2) Revised to reflect an adjusted country allocation
in millions of euros
| 2nd quarter | ||||||
|---|---|---|---|---|---|---|
| 2011 | 2012 | |||||
| Netherlands | other | total | Netherlands | other | total | |
| Costs of defined-benefit plans (pensions) | ||||||
| Service cost | 32 | 17 | 49 | 44 | 21 | 65 |
| Interest cost on the defined-benefit obligation | 139 | 99 | 238 | 127 | 100 | 227 |
| Expected return on plan assets | (179) | (96) | (275) | (184) | (110) | (294) |
| Prior service cost | − | 1 | 1 | − | − | − |
| Curtailment | − | (15) | (15) | − | − | − |
| Net periodic cost (income) | (8) | 6 | (2) | (13) | 11 | (2) |
| of which discontinued operations | 1 | 1 | 2 | − | − | − |
| Costs of defined-contribution plans | 2 | 24 | 26 | 2 | 30 | 32 |
| Costs of defined-benefit plans (retiree medical) |
||||||
| Service cost | − | 1 | 1 | − | − | − |
| Interest cost on the defined-benefit obligation | − | 4 | 4 | − | 3 | 3 |
| Prior service cost | − | (1) | (1) | − | (26) | (26) |
| Net periodic cost | − | 4 | 4 | − | (23) | (23) |
| January to June | |||||||
|---|---|---|---|---|---|---|---|
| 2011 | 2012 | ||||||
| Netherlands | other | total | Netherlands | other | total | ||
| Costs of defined-benefit plans (pensions) | |||||||
| Service cost | 64 | 36 | 100 | 87 | 42 | 129 | |
| Interest cost on the defined-benefit obligation | 278 | 201 | 479 | 255 | 195 | 450 | |
| Expected return on plan assets | (357) | (193) | (550) | (369) | (216) | (585) | |
| Prior service cost | − | 1 | 1 | − | − | − | |
| Curtailment | − | (15) | (15) | − | − | − | |
| Net periodic cost (income) | (15) | 30 | 15 | (27) | 21 | (6) | |
| of which discontinued operations | 2 | 1 | 3 | − | 1 | 1 | |
| Costs of defined-contribution plans | 4 | 57 | 61 | 5 | 67 | 72 | |
| of which discontinued operations | − | 1 | 1 | 1 | 1 | 2 | |
| Costs of defined-benefit plans (retiree medical) |
|||||||
| Service cost | − | 1 | 1 | − | 1 | 1 | |
| Interest cost on the defined-benefit obligation | − | 9 | 9 | − | 6 | 6 | |
| Prior service cost | − | (2) | (2) | − | (27) | (27) | |
| Net periodic cost | − | 8 | 8 | − | (20) | (20) |
all amounts in millions of euros unless otherwise stated.
Certain non-GAAP financial measures are presented when discussing the Philips Group's performance. In the following tables, a reconciliation to the most directly comparable IFRS performance measure is made.
| 2nd quarter | January to June | |||||||
|---|---|---|---|---|---|---|---|---|
| comparable growth |
currency effects |
consolid ation changes |
nominal growth |
comparable growth |
currency effects |
consolid ation changes |
nominal growth |
|
| 2012 versus 2011 | ||||||||
| Healthcare | 7.3 | 8.7 | − | 16.0 | 7.9 | 6.2 | − | 14.1 |
| Consumer Lifestyle | 2.5 | 4.8 | 1.4 | 8.7 | 1.0 | 3.1 | 1.7 | 5.8 |
| Lighting | 5.5 | 6.1 | 2.4 | 14.0 | 3.9 | 3.9 | 2.0 | 9.8 |
| IG&S | (13.0) | (0.4) | − | (13.4) | (9.0) | 0.2 | (11.9) | (20.7) |
| Philips Group | 5.2 | 6.7 | 1.1 | 13.0 | 4.5 | 4.5 | 0.8 | 9.8 |
| Philips Group | Healthcare | Consumer Lifestyle |
Lighting | IG&S | |
|---|---|---|---|---|---|
| January to June 2012 | |||||
| EBITA (or Adjusted income from operations) | 1,002 | 558 | 362 | 154 | (72) |
| Amortization of intangibles1) | (226) | (99) | (35) | (88) | (4) |
| Impairment of goodwill | − | − | − | − | − |
| Income from operations (or EBIT) | 776 | 459 | 327 | 66 | (76) |
| January to June 2011 | |||||
| EBITA (or Adjusted income from operations) | 809 | 475 | 105 | 294 | (65) |
| Amortization of intangibles1) | (258) | (124) | (50) | (81) | (3) |
| Impairment of goodwill | (1,355) | (824) | − | (531) | − |
| Income from operations (or EBIT) | (804) | (473) | 55 | (318) | (68) |
1) Excluding amortization of software and product development
| July 3, | December 31, | July 1, | |
|---|---|---|---|
| 2011 | 2011 | 2012 | |
| Long-term debt | 2,703 | 3,278 | 4,123 |
| Short-term debt | 713 | 582 | 777 |
| Total debt | 3,416 | 3,860 | 4,900 |
| Cash and cash equivalents | 3,260 | 3,147 | 3,134 |
| Net debt (cash) (total debt less cash and cash equivalents) | 156 | 713 | 1,766 |
| Shareholders' equity | 13,086 | 12,355 | 12,142 |
| Non-controlling interests | 30 | 34 | 35 |
| Group equity | 13,116 | 12,389 | 12,177 |
| Net debt and group equity | 13,272 | 13,102 | 13,943 |
| Net debt divided by net debt and group equity (in %) | 1 | 5 | 13 |
| Group equity divided by net debt and group equity (in %) | 99 | 95 | 87 |
all amounts in millions of euros
| July 1, 2012 Net operating capital (NOC) 11,531 8,542 1,546 5,343 (3,900) Exclude liabilities comprised in NOC: - payables/liabilities 9,385 2,775 1,419 1,548 3,643 - intercompany accounts − 68 33 54 (155) - provisions 2,540 287 339 275 1,639 Include assets not comprised in NOC: - investments in associates 203 88 − 22 93 - other non-current financial assets 576 − − − 576 - deferred tax assets 1,792 − − − 1,792 - cash and cash equivalents 3,134 − − − 3,134 29,161 11,760 3,337 7,242 6,822 Assets classified as held for sale 48 Total assets 29,209 December 31, 2011 Net operating capital (NOC) 10,427 8,418 884 5,020 (3,895) Exclude liabilities comprised in NOC: - payables/liabilities 9,940 2,697 2,039 1,450 3,754 - intercompany accounts − 103 87 51 (241) - provisions 2,639 287 558 227 1,567 Include assets not comprised in NOC: - investments in associates 203 86 3 23 91 - other non-current financial assets 346 − − − 346 - deferred tax assets 1,713 − − − 1,713 - cash and cash equivalents 3,147 − − − 3,147 28,415 11,591 3,571 6,771 6,482 Assets classified as held for sale 551 Total assets 28,966 July 3, 2011 Net operating capital (NOC) 11,302 7,534 1,428 5,021 (2,681) Exclude liabilities comprised in NOC: - payables/liabilities 7,912 2,363 1,403 1,330 2,816 - intercompany accounts − 73 109 51 (233) - provisions 2,214 255 308 221 1,430 Include assets not comprised in NOC: - investments in associates 164 72 21 71 − - other current financial assets 3 − − − 3 - other non-current financial assets 367 − − − 367 - deferred tax assets 1,304 − − − 1,304 - cash and cash equivalents 3,260 − − − 3,260 26,526 10,297 3,248 6,644 6,337 Assets classified as held for sale 614 |
Consumer | |||||
|---|---|---|---|---|---|---|
| Philips Group | Healthcare | Lifestyle | Lighting | IG&S | ||
| Total assets | 27,140 |
all amounts in millions of euros
| 2nd quarter | January to June | |||
|---|---|---|---|---|
| 2011 | 2012 | 2011 | 2012 | |
| Cash flows provided by (used for) operating activities | 631) | 52 | (430)1) | 383 |
| Cash flows used for investing activities | (344)1) | (245) | (522)1) | (340) |
| Cash flows before financing activities | (281) | (193) | (952) | 43 |
| Cash flows provided by (used for) operating activities | 631) | 52 | (430)1) | 383 |
| Net capital expenditures: | (243) | (263) | (467) | 48 |
| Purchase of intangible assets | (17) | (21) | (65) | (40) |
| Proceeds from sale of intangible assets | − | − | − | 160 |
| Expenditures on development assets | (69) | (75) | (119) | (139) |
| Capital expenditures on property, plant and equipment | (178)1) | (189) | (339)1) | (343) |
| Proceeds from disposals of property, plant and equipment | 21 | 22 | 56 | 410 |
| Free cash flows | (180) | (211) | (897) | 431 |
1) Revised to reflect an adjusted allocation of capital expenditures on property, plant and equipment
all amounts in millions of euros unless otherwise stated
| 2011 | 2012 | |||||||
|---|---|---|---|---|---|---|---|---|
| 1st quarter | 2nd quarter | 3rd quarter | 4th quarter | 1st quarter | 2nd quarter | 3rd quarter | 4th quarter | |
| Sales | 5,257 | 5,216 | 5,394 | 6,712 | 5,608 | 5,892 | ||
| % increase | 6 | (3) | (1) | 3 | 7 | 13 | ||
| EBITA | 438 | 371 | 368 | 503 | 552 | 450 | ||
| as a % of sales | 8.3 | 7.1 | 6.8 | 7.5 | 9.8 | 7.6 | ||
| EBIT | 319 | (1,123) | 273 | 262 | 438 | 338 | ||
| as a % of sales | 6.1 | (21.5) | 5.1 | 3.9 | 7.8 | 5.7 | ||
| Net income (loss) | 138 | (1,345) | 76 | (160) | 249 | 167 | ||
| Net income (loss) - shareholders per common share in euros - basic |
0.14 | (1.39) | 0.08 | (0.17) | 0.27 | 0.18 | ||
| January March |
January June |
January September |
January December |
January March |
January June |
January September |
January December |
|
| Sales | 5,257 | 10,473 | 15,867 | 22,579 | 5,608 | 11,500 | ||
| % increase | 6 | 1 | 0 | 1 | 7 | 10 | ||
| EBITA | 438 | 809 | 1,177 | 1,680 | 552 | 1,002 | ||
| as a % of sales | 8.3 | 7.7 | 7.4 | 7.4 | 9.8 | 8.7 | ||
| EBIT | 319 | (804) | (531) | (269) | 438 | 776 | ||
| as a % of sales | 6.1 | (7.7) | (3.3) | (1.2) | 7.8 | 6.7 | ||
| Net income (loss) | 138 | (1,207) | (1,131) | (1,291) | 249 | 416 | ||
| Net income (loss) - shareholders per common share in euros - basic |
0.14 | (1.26) | (1.18) | (1.36) | 0.27 | 0.45 | ||
| Net income (loss) from continuing operations as a % of shareholders' equity |
6.6 | (14.8) | (8.8) | (5.7) | 8.9 | 7.2 | ||
| period ended 2011 | period ended 2012 | |||||||
| Inventories as a % of sales | 15.7 | 16.8 | 18.2 | 16.1 | 16.7 | 16.8 | ||
| Net debt : group equity ratio | (3):103 | 1:99 | 8:92 | 5:95 | 6:94 | 13:87 | ||
| Total employees (in thousands) | 122 | 125 | 125 | 125 | 122 | 122 | ||
| of which discontinued operations | 4 | 4 | 4 | 3 | − | − |
Information also available on Internet, address: www.philips.com/investorrelations
| Significant accounting policies 1 |
36 |
|---|---|
| Estimates 2 |
38 |
| Financial risk management 3 |
38 |
| Segment information 4 |
38 |
| Seasonality 5 |
38 |
| 6 Discontinued operations and Other assets |
38 |
| classified as held for sale | |
| Acquisitions and divestments 7 |
39 |
| Income taxes 8 |
39 |
| Investments in associates 9 |
40 |
| Property, plant and equipment 10 |
40 |
| Goodwill 11 |
40 |
| 12 Intangible assets excluding goodwill |
41 |
| Other non-current financial assets 13 |
42 |
| Inventories 14 |
42 |
| Shareholders' equity 15 |
42 |
| Short-term and long-term debt 16 |
43 |
| Provisions 17 |
43 |
| Accrued liabilities 18 |
43 |
| 19 Pensions |
43 |
| Contingent liabilities 20 |
43 |
| Related-party transactions 21 |
44 |
| Share-based compensation 22 |
45 |
all amounts in millions of euros unless otherwise stated
This report contains the semi-annual financial report of Koninklijke Philips Electronics N.V. ('the Company'), a company with limited liability, headquartered in Amsterdam, the Netherlands. The principal activities of the Company and its group companies (the Philips Group) are described in note 4, Segment information.
The semi-annual financial statements have been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union.
The significant accounting policies applied in these semiannual financial statements are consistent with those applied in the Company's Consolidated IFRS financial statements as at and for the year ended December 31, 2011, except for the following three voluntary accounting policy changes and the adoption of the below amendment to a standard. Additionally, as mentioned in note 4, Segment information, the previously reported segment GM&S (Group Management & Services) has been renamed to IG&S (Innovation, Group & Services). This change did not affect the description and the content reported under this segment. The following changes are also expected to be reflected in the Company's Consolidated IFRS financial statements as at and for the year ending December 31, 2012.
1 Significant accounting policies products, which are no longer sold by a sector were allocated to Group Management & Services (currently Innovation, Group & Services), with the exception of sector Consumer Lifestyle, where IP royalties on such products were allocated to sector Consumer Lifestyle (CL) itself. As of 2012, all IP royalties on products no longer sold by a sector have been allocated to sector Innovation, Group & Services (IG&S). This policy change is applied retrospectively and only impacts the sector information, resulting in a reclassification of EUR 102 million and EUR 82 million on the Sales and Income from operations lines respectively from sector CL to Sector IG&S for the six months ended July 3, 2011. This change also has a reclassification impact on total assets from sector CL to sector IG&S totaling EUR 77 million as at July 3, 2011.
These accounting policy changes have no impact on Earnings per share, Consolidated balance sheets, Consolidated statements of cash flows and Consolidated statements of changes in equity.
The following amendment to a standard has been adopted as relevant for the Company for the first time. This amendment has been endorsed by the EU and has no effect on the Company's semi-annual financial statements:
• IFRS 7 'Financial Instruments: Disclosures – Transfer of Financial Assets'
The following amendments to standards have not been adopted by the Company in 2012 as they have not been endorsed by the EU; however, these amendments to standards are not applicable to the Company's semiannual financial statements and consolidated financial statements:
The following new standards and amendments to existing standards have been published and are mandatory for the Company beginning on or after January 1, 2013 or later periods. The Company has not early-adopted these standards:
The revisions to IAS 19 are effective for annual periods beginning on or after January 1, 2013, and have been endorsed by the EU. In general, the amendment no longer allows for deferral of actuarial gains and losses or cost of plan changes and it introduces significant changes to the recognition and measurement of defined-benefit pension expenses and their presentation in the Statement of income. Additional disclosure requirements have been added for risks and plan objectives, and the distinction between short-term and other long-term benefits has been revised. The revisions further clarify the classification of various costs involved in benefit plans like expenses and taxes.
The amendment will have a material impact on income from operations and net income of the Company, resulting from the changes in measurement and reporting of expected returns on plan assets (and interest costs), which is currently reported under Income from operations. The revised standard requires interest income or expense to be calculated on the net balance recognized, with the rate used to discount the definedbenefit obligations.
There is no impact on the cash flow statement and the balance sheet, since the Company already applies immediate recognition of actuarial gains and losses. The Company also has some unrecognized prior service cost gains which must be recognized. These will lower the provisions on the balance sheet by EUR 10 million.
The impact on net income leads to a lower amount recognized in actuarial gains and losses in equity. The impact was determined by applying the revised IAS 19R to current postemployment benefit plans, excluding longterm plans not requiring actuarial valuations for projection to 2013. The Company will present net interest expense as part of Financial income and expenses. The below estimate given in our Annual Report 2011 is still a reasonable estimate of the impact on net income:
| Income from operations | EUR (260) million |
|---|---|
| Financial income & expenses | EUR (90) million |
| Income before tax | EUR (350) million |
The standard also enhances the definition of termination benefits and what constitutes a benefit for future service. In many cases these clarifications are reinforcing the current standard, therefore this is not expected to materially impact the consolidated financial statements.
The standard introduces certain new requirements for classifying and measuring financial assets and liabilities. IFRS 9 divides all financial assets that are currently in the scope of IAS 39 into two classifications: those measured at amortized cost and those measured at fair value. The standard, along with proposed expansion of IFRS 9 for classifying and measuring financial liabilities, derecognition of financial instruments, impairment, and hedge accounting, will be applicable from January 1, 2015, although entities are permitted to adopt earlier. This standard has not yet been endorsed by the EU. The new standard will primarily impact the accounting for availablefor-sale securities within Philips and will, accordingly, change the timing and placement (profit or loss versus other comprehensive income) of changes in the respective fair value. Currently the actual impact in the year it will be applied cannot be estimated on a reasonable basis.
IFRS 10 replacesthe consolidation requirementsin SIC-12 Consolidation—Special Purpose Entities and IAS 27 Consolidated and Separate Financial Statements. IFRS 10 changes the definition of control so the same criteria are applied to all entities to determine control. The revised definition of control focuses on the need to have both power and variable returns before control is present. The new standard includes guidance on control with less than half of the voting rights ('de-facto' control), participating and protective voting rights and agent/principal relationships. This new standard will be applicable from January 1, 2013, but has not yet been endorsed by the EU. The Company is currently evaluating the impact that this new standard will have on the Company's consolidated financial statements.
The Company is currently assessing the potential other new standards, amendments to standards and interpretations that are effective for annual periods on or after January 1, 2013 and which the Company has not early-adopted. None of these are expected to have a material effect on the Company's consolidated financial statements.
The preparation of the semi-annual financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.
In preparing these condensed consolidated semi-annual financial statements, the significant estimates and judgments made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements as at and for the year ended December 31, 2011.
The Group's financial risk management objectives and policies are consistent with those disclosed in the consolidated financial statements as at and for the year ended December 31, 2011.
Philips' activities are organized on a sector basis, with operating sectors – Healthcare, Consumer Lifestyle and Lighting – each being responsible for the management of its business worldwide, and Innovation, Group & Services (IG&S). The previously reported segment GM&S (Group Management & Services) has been renamed to IG&S (Innovation, Group & Services). A short description of these sectors is as follows:
2 Estimates shared business services for purchasing, finance, human resources, IT,real estate and supply are reported in this sector.
Reportable segments for the purpose of the segmental disclosures required by IAS 34 Interim Financial Statements are: Healthcare, Consumer Lifestyle and Lighting.
Significant segment information can be found in the Sectors, Sectors and main countries and Reconciliation of non-GAAP performance measures sections of this document.
3 Financial risk management 4 Segment information Under normal economic conditions, the Group's sales are impacted by seasonal fluctuations, particularly at Consumer Lifestyle and Healthcare, typically resulting in higher revenues and earnings in the second half-year results. Within Healthcare, sales are generally higher in the second half of the year, largely due to the timing of new product availability and customers attempting to spend their annual budgeted allowances before the end of the year. Within Consumer Lifestyle, sales are generally higher in the second half-year due to the holiday sales. Salesin the Lighting businesses are generally not materially affected by seasonality.
For the 12 months ended July 1, 2012, Healthcare, Consumer Lifestyle and Lighting had revenues of EUR 9,423 million, EUR 5,761 million and EUR 7,999 million respectively (12 months ended July 3, 2011, Healthcare, Consumer Lifestyle and Lighting had revenues of EUR 8,763 million, EUR 5,584 million and EUR 7,563 million respectively).
As announced in the press release on the first quarter of 2012, the Television business's long-term strategic partnership agreement with TPV was signed on April 1, 2012. The results related to the Television business are reported under Discontinued operations in the Consolidated statements of income and Consolidated statements of cash flows. The following table summarizes the results of the Television business included in the Consolidated statements of income as discontinued operations.
| January to June | ||||
|---|---|---|---|---|
| 2011 | 2012 | |||
| Sales | 1,186 | 565 | ||
| Costs and expenses | (1,304) | (612) | ||
| Deal related costs | (85) | (2) | ||
| Income (loss) before taxes | (203) | (49) | ||
| Income taxes | 14 | 23 | ||
| Results from discontinued operations | (189) | (26) |
At December 31, 2011, Television business assets held for sale amounted to EUR 201 million and liabilities directly associated with the Television business assets held forsale amounted to EUR 7 million.
Assets and liabilities directly associated with assets held for sale relate to property, plant and equipment for an amount of EUR 14 million (December 31, 2011 EUR 269 million) and business divestments of EUR (19) million at July 1, 2012 (December 31, 2011 EUR 27 million).
On March 29, 2012, Philips announced the completion of the High Tech Campus transaction with proceeds of EUR 425 million, consisting of a EUR 373 million cash transaction and an amount of EUR 52 million that will be received in future years. The gain from the transaction, after deducting expenses related to other real estate efficiency measures which are part of the EUR 800 million cost reduction program announced in 2011, will be EUR 65 million, EUR 37 million of which was recognized in the first quarter of 2012 in income from operations while EUR 28 million was deferred to future periods and is recognized periodically starting as of April 2012. The deferral of the gain relates to the finance lease element in the sale and lease-back arrangement part of the deal.
In the first half-year of 2012 the main divestment made was the Speech Processing business in Consumer Lifestyle. In Healthcare a minor service activity was divested, and in Lighting a minor manufacturing activity.
On January 9, 2012 Philips acquired (in)directly 99.93% of the outstanding shares of Industrias Derivadas del Aluminio, S.L. (Indal). This acquisition involved an aggregated purchase price of EUR 210 million and has been accounted for using the acquisition method. By the end of July 2012, Indal will be fully owned by Philips.
The acquisition of Indal fits in with Philips' ambition to grow its presence in professional lighting solutions, creating a platform to expand its capabilities to deliver lighting solutions and lead the transition to energyefficient LED-based lighting applications. The acquisition involved a goodwill amount of EUR 70 million, which is primarily related to the synergies expected to be achieved from integrating Indal in the Professional Lighting Solutions business (former Professional Luminaires business) of the Lighting sector.
Measured on a half-yearly basis, the aggregated impact of this acquisition on Group Sales, Income from operations, Net income and Net income per common share (on a fully diluted basis) is not material in respect of IFRS 3 disclosure requirements.
Philips completed three divestments of business activities during the first six months of 2012, which comprised certain Lighting manufacturing activities, the Speech Processing business in Consumer Lifestyle and certain Healthcare service activities. These transactions involved an aggregated consideration of EUR 49 million and are therefore deemed immaterial in respect of IFRS 3 disclosure requirements.
7 Acquisitions and divestments On January 26, 2012, Philips agreed to extend its partnership with Sara Lee Corp (Sara Lee) to drive growth in the global coffee market. Under a new exclusive partnership framework, which will run through to 2020, Philips will be the exclusive Senseo consumer appliance manufacturer and distributor for the duration of the agreement. As part of the agreement, Philips transferred its 50% ownership right in the Senseo trademark to Sara Lee. Under the terms of the agreement, Sara Lee paid Philips a total consideration of EUR 170 million. The consideration was recognized in Other business income for an amount of EUR 160 million. The remainder was included in various line items of the Consolidated statements of income (EUR 8 million) or deducted from the book value of Property, plant and equipment (EUR 2 million).
Income tax expense isrecognized based on management's best estimate of the weighted average annual income tax rate expected for the full financial year applied to the pretax income of the interim period. This year's income tax expense is higher compared with 2011, mainly due to higher taxable earnings, partly offset by higher incidental tax benefits largely due to releases of tax provisions for uncertain tax positions.
Results relating to investments in associates declined in the first six months of 2012 compared to the previous year, which was mainly due to restructuring charges of EUR 11 million recognized within a lighting venture in which Philips has a participation of 50%.
During the first six months ended July 1, 2012, there were no significant movements in Property, plant and equipment. Apart from currency translation-related differences of EUR 47 million (six months ended July 3, 2011: EUR 116 million), the addition of EUR 398 million (six months ended July 3, 2011: EUR 346 million) was largely offset by depreciation and impairment charges of EUR 317 million (six months ended July 3, 2011: EUR 308 million).
| Balance as of December 31, 2011: | |
|---|---|
| Cost | 9,224 |
| Amortization and impairments | (2,208) |
| Book value | 7,016 |
| Changes in book value: | |
| Acquisitions | 70 |
| Impairments | − |
| Transfer to assets classified as held for sale and divestments |
(6) |
| Translation differences | 210 |
| Balance as of July 1, 2012: | |
| Cost | 9,564 |
| Amortization and impairments | (2,274) |
| Book value | 7,290 |
Acquisitions in 2012 include goodwill related to the acquisition of Indal of EUR 70 million. In addition, goodwill changed due to the finalization of purchase price accounting related to acquisitions in the prior year, with a net effect of 0 for the first six months of 2012.
For impairment testing, goodwill is allocated to (groups of) cash-generating units (typically one level below sector level), which represent the lowest level at which the goodwill is monitored for internal management purposes.
9 Investments in associates In 2012 the organizational structure of the Lighting sector was changed. As a result of the change, the goodwill associated with the former unit Lamps was allocated to Light Sources & Electronics. In addition, the goodwill associated with the former Lighting Systems & Controls unit was allocated to Light Sources & Electronics and to Professional Lighting Solutions (former name was Professional Luminaires).
Goodwill allocated to the cash-generating units Respiratory Care & Sleep Management, Professional Lighting Solutions, Imaging Systems, and Patient Care & Clinical Informatics are considered to be significant in comparison to the total book value of goodwill for the Group at July 1, 2012. The amounts associated as of July 1, 2012, are presented below:
| EUR 317 million (six months ended July 3, 2011: EUR 308 | July 1, 2012 | |
|---|---|---|
| million). | ||
| Respiratory Care & Sleep Management | 1,828 | |
| Goodwill 11 |
Professional Lighting Solutions | 1,373 |
| Imaging Systems | 1,558 | |
| Goodwill is summarized as follows: | Patient Care & Clinical Informatics | 1,402 |
The basis of the recoverable amount used in the annual (performed in the second quarter) and trigger-based impairment tests is the value in use. Key assumptions used in the impairment tests for the units in the table above were sales growth rates, income from operations and the rates used for discounting the projected cash flows. These cash flow projections were determined using management's internal forecasts that cover an initial period from 2012 to 2016 that matches the period used for our strategic process. Projections were extrapolated with stable or declining growth rates for a period of 5 years, after which a terminal value was calculated. For terminal value calculation, growth rates were capped at a historical long-term average growth rate.
The sales growth rates and margins used to estimate cash flows are based on past performance, external market growth assumptions and industry long-term growth averages.
Income from operationsin all unitsis expected to increase over the projection period as a result of volume growth and cost efficiencies.
Cash flow projections of Respiratory Care & Sleep Management, Professional Lighting Solutions, Imaging Systems, and Patient Care & Clinical Informatics for 2012 were based on the following key assumptions (based on the annual impairment test performed in the second quarter):
in %
| compound sales growth rate1) | |||||||
|---|---|---|---|---|---|---|---|
| initial forecast period |
extra polation period2) |
used to calculate terminal value |
pre-tax discount rates |
||||
| Respiratory Care & Sleep Management |
8.0 | 5.8 | 2.7 | 11.2 | |||
| Professional Lighting Solutions |
6.6 | 5.3 | 2.7 | 13.0 | |||
| Imaging Systems | 3.4 | 2.9 | 2.7 | 12.8 | |||
| Patient Care & Clinical Informatics |
6.5 | 4.1 | 2.7 | 13.2 |
1) Compound sales growth rate is the annualized steady growth rate over the forecast period
2) Also referred to later in the text as compound long-term sales growth rate
Among the mentioned units, Respiratory Care & Sleep Management and Professional Lighting Solutions have the highest amount of goodwill and the lowest excess of the recoverable amount over the carrying amount. The headroom of Respiratory Care & Sleep Management was estimated at EUR 560 million. The following changes could, individually, cause the value in use to fall to the level of the carrying value:
| increase in pre tax discount rate, basis points |
decrease in long-term growth rate, basis points |
decrease in terminal value amount, % |
|
|---|---|---|---|
| Respiratory Care & Sleep Management |
210 | 400 | 30.0 |
Based on the annual impairment test, it was noted that for Professional Lighting Solutions the estimated recoverable amount approximates the carrying value of the cashgenerating unit. Consequently, any adverse change in key assumptions would, individually, cause an impairment loss to be recognized.
The results of the annual impairment test of Imaging Systems and Patient Care & Clinical Informatics have indicated that a reasonably possible change in key assumptions would not cause the value in use to fall to the level of the carrying value.
In addition, other units, to which a lower amount of goodwill is allocated, are sensitive to fluctuations in the assumptions as set out above.
Based on the annual impairment test, it was noted that the headroom for the cash-generating unit Home Monitoring was EUR 49 million. An increase of 140 points in pre-tax discounting rate, a 250 basis points decline in the compound long-term sales growth rate or a 20% decrease in terminal value would cause its value in use to fall to the level of its carrying value. The goodwill allocated to Home Monitoring at July 1, 2012 amounts to EUR 44 million.
Based on the annual impairment test, it was noted that the headroom for the cash-generating unit Lumileds was EUR 487 million. An increase of 420 points in pre-tax discounting rate, a 670 basis points decline in the compound long-term sales growth rate or a 46% decrease in terminal value would cause its value in use to fall to the level of its carrying value. The goodwill allocated to Lumileds at July 1, 2012 amounts to EUR 139 million.
Based on the annual impairment test, it was noted that the headroom for the cash-generating unit Consumer Luminaires was EUR 153 million. An increase of 380 points in pre-tax discounting rate, a 710 basis points decline in the compound long-term sales growth rate or a 52 % decrease in terminal value would cause its value in use to fall to the level of its carrying value. The goodwill allocated to Consumer Luminaires at July 1, 2012 amounts to EUR 135 million.
The changes in intangible assets excluding goodwill in 2012 are summarized as follows:
| Book value as of December 31, 2011 | 3,996 |
|---|---|
| Changes in book value: | |
| Additions | 176 |
| Acquisitions and purchase price allocation adjustment | 135 |
| Amortization/deductions | (341) |
| Impairment losses | (14) |
| Translation differences | 109 |
| Total changes | 65 |
| Book value as of July 1, 2012 | 4,061 |
The acquisitions through business combinations in 2012 mainly consist of the acquired intangible assets of Indal for EUR 134 million. During the first six months of 2011
Philips completed four acquisitions, which involved an aggregate amount of intangible assets of EUR 86 million, of which the majority relates to the acquisition of the India-based kitchen appliances business of Preethi.
The changes in other non-current financial assets in 2012 are as follows:
| Balance as of December 31, 2011 | 346 |
|---|---|
| Changes: | |
| Acquisitions and additions | 225 |
| Sales, redemptions and reductions | (2) |
| Value adjustments | 7 |
| Balance as of July 1, 2012 | 576 |
Other non-current financial assets consist mainly of available-for-sale financial assets (EUR 211 million) and loans and receivables (EUR 261 million).
Acquisitions and additions amounted to EUR 225 million during the first six months of 2012, mainly due to loans provided to TPV Technology Limited and the television joint venture TP Vision Holding BV (EUR 151 million in aggregate), which was established on April 1, 2012 in the context of the divestment of Philips' Television business. Additionally there was an increase of EUR 53 million in Loans and receivables related to the sale of real estate belonging to the High Tech Campus.
In 2010 Philips sold its entire holding of common shares in NXP Semiconductors B.V. (NXP) to Philips Pension Trustees Limited (herein referred to as "UK Pension Fund"). As a result of this transaction the UK Pension Fund obtained the full legal title and ownership of the NXP shares, including the entitlement to any future dividends and the proceeds from any sale of shares. From the date of the transaction the NXP shares are an integral part of the plan assets of the UK Pension Fund. The purchase agreement with the UK Pension Fund includes an arrangement that may entitle Philips to a cash payment from the UK Pension Fund on or after September 7, 2014, if the value of the NXP shares has increased by this date to a level in excess of a predetermined threshold, which at the time of the transaction was substantially above the transaction price, and the UK Pension Fund is in a surplus (on the regulatory funding basis) on September 7, 2014. The arrangement qualifies as a financial instrument and is reported under Other non-current financial assets. The fair value of the arrangement was estimated to be EUR 8 million as of December 31, 2011. As of July 1, 2012 management's best estimate of the fair value of the
13 Other non-current financial assets arrangement is EUR 24 million, based on the risks, the stock price of NXP, the current progress and the longterm nature of the recovery plan for the 2009 deficit of the UK Pension Fund. The change in fair value until July 1, 2012 is reported under Value adjustments in the table above and also recognized in Financial income.
Inventories are summarized as follows:
| December 31, | July 1, | |
|---|---|---|
| 2011 | 2012 | |
| Raw materials and supplies | 1,083 | 1,247 |
| Work in progress | 630 | 612 |
| Finished goods | 1,912 | 2,114 |
| 3,625 | 3,973 |
The amounts recorded above are net of allowances for obsolescence.
On July 1, 2012, the write-down of inventories to net realizable value amounted to EUR 139 million (year-end 2011: EUR 239 million). The write-down is included in Cost of sales.
In May 2012, Philips settled a dividend of EUR 0.75 per common share, representing a total value of EUR 687 million. Shareholders could elect for a cash dividend or a share dividend. Approximately 62.4% of the shareholders elected for a share dividend, resulting in the issuance of 30,522,107 new common shares. The settlement of the cash dividend involved an amount of EUR 258 million.
As of July 1, 2012, the issued and fully paid share capital consists of 1,039,497,552 common shares, each share having a par value of EUR 0.20.
During the first six months of 2012 a total of 2,765,564 treasury shares were delivered as a result of stock option exercises,restricted share deliveries and other employeerelated share plans, and a total of 27,991,898 shares were acquired for cancellation purposes in connection with the EUR 2 billion share buy-back program started in July 2011. On July 1, 2012 the total number of treasury shares amounted to 108,106,877, which were purchased at an average price of EUR 18.92 per share.
At the end of Q2 2012, Philips had total debt of EUR 4,900 million, an increase of EUR 1,040 million compared to December 31, 2011. Long-term debt was EUR 4,123 million, an increase of EUR 845 million, and short-term debt was EUR 777 million, an increase of EUR 195 million compared to December 31, 2011. The movement of debt was mainly as a result of the issuance of USD 1,500 million of bonds in Q1 2012, offset by early redemption of USD 500 million of bonds in Q2 2012. Total remaining longterm debt consists mainly of USD 4,260 million of public bonds. The weighted average interest rate of long-term USD bonds was 5.64% at the end of Q2 2012.
Provisions are summarized as follows:
| December 31, | 2011 | July 1, 2012 | ||
|---|---|---|---|---|
| long term |
short term |
long term |
short term |
|
| Provisions for defined-benefit plans | 760 | 55 | 762 | 51 |
| Other postretirement benefits | 264 | 22 | 236 | 23 |
| Postemployment benefits and obligatory severance payments |
79 | 25 | 69 | 24 |
| Product warranty | 65 | 258 | 64 | 225 |
| Loss contingencies (environmental remediation and product liability) |
268 | 37 | 284 | 28 |
| Restructuring-related provisions | 51 | 118 | 78 | 140 |
| Onerous contract provisions | 84 | 164 | 40 | 53 |
| Other provisions | 309 | 80 | 344 | 119 |
| 1,880 | 759 | 1,877 | 663 |
The reduction of onerous contract provision is largely attributable to divestment of the Television business. More details can be found in Note 6 Discontinued operations and Other assets classified as held for sale.
The decrease in accrued liabilities was mainly driven by lower material and other cost-related accruals of EUR 41 million and other accruals totalling EUR 56 million. Additionally, personnel-related accruals were EUR 21 million lower, and deferred income income EUR 72 million higher, compared to the end of 2011.
In accordance with IAS 34, actuarial gains and losses are reported in the semi-annual financial statements only if there have been significant changes in financial markets.
16 Short-term and long-term debt Actuarial gains or losses as well as changes in the effect of the asset ceiling, if any, are reported under Other comprehensive income and against the respective balance sheet items.
In the first six months of 2012 no actuarial gains or losses were recorded as the changes in financial markets during that period were considered not significant.
In the first six months of 2012 the change in the effect of the asset ceiling was a loss of EUR 161 million before tax.
In the first six months of 2011 no actuarial gains and losses and no changes in the effect of the asset ceiling were recorded.
For the whole of 2011 the combined effect of actuarial gains and losses and changes in the effects of the asset ceiling was a reduction in equity of EUR 447 million net of tax due to unfavorable developments in the second half of the year.
The half-year estimates are limited to the principal plans, i.e. the defined-benefit plans in the Netherlands, Germany, the UK and the US, which together represent more than 90% of the defined-benefit pension assets and liabilities for the Group as a whole.
The actual balances in interim periods do not contain prepaid pension costs as an asset if the Company does not expect them to be recognized at the end of the year. The asset ceiling test is applied in accordance with IFRIC 14.
18 Accrued liabilities Philips' policy is to provide guarantees and other letters of support only in writing. Philips does not stand by other forms of support. At the end of Q2 2012, the total fair value of guarantees recognized on the balance sheet was EUR 9 million (December 31, 2011: EUR 9 million). Remaining off-balance-sheet business and credit-related guarantees provided to third parties and associates decreased by EUR 13 million during the first half of 2012 to EUR 323 million.
19 Pensions The Company and its subsidiaries are subject to environmental laws and regulations. Underthese laws, the Company and/or its subsidiaries may be required to remediate the effects of the release or disposal of certain chemicals on the environment. The company accrues for losses associated with environmental obligations when
such losses are probable and reliably estimable. Such amounts are recognized on a discounted basis since they reflect the present value of estimated future cash flows.
Provisions for environmental remediation can change significantly due to the emergence of additional information regarding the extent or nature of the contamination, the need to utilize alternative technologies, actions by regulatory authorities and changes in judgments, assumption, and discount rates.
The Company and/or its subsidiaries have recognized environmental remediation provisions for sites in various countries. In the United States, subsidiaries of the Company have been named as potentially responsible parties in state and federal proceedings for the clean-up of various sites.
The Company and certain of its group companies and former group companies are involved as a party in legal proceedings, including regulatory and other governmental proceedings, including discussions on potential remedial actions, relating to such matters as competition issues, commercial transactions, product liability, participations and environmental pollution. In respect of antitrust laws, the Company and certain of its (former) group companies are involved in investigations by competition law authorities in several jurisdictions and are engaged in litigation in this respect. Since the ultimate disposition of asserted claims and proceedings and investigations cannot be predicted with certainty, an adverse outcome could have a material adverse effect on the Company's consolidated financial position and consolidated results of operations for a particular period. For certain legal proceedings information required under IAS 37 is not disclosed, if the Company concludes that the disclosure can be expected to prejudice seriously the outcome of the legal proceeding.
For information regarding legal proceedings in which the Company is involved, please refer to our Annual Report 2011. Significant developments regarding legal proceedings that have occurred since the publication of our Annual Report 2011 are described below:
In the first half of 2012, in addition to the existing Indirect Purchaser claims and Direct Purchaser claims, the State of Washington filed a complaint against Philips based on their alleged purchases of CRT's and a settlement was reached with the State of California regarding similar allegations. Furthermore, the Direct Purchaser Plaintiffs settlement agreement has been submitted to the court
for approval, which is expected to be obtained in the second half of 2012. Certain plaintiffs opted out of the Direct Purchaser Plaintiff class settlement, which will reduce the amount of the settlement fund with the Direct Purchaser class.
In June 2012, the Company received a supplemental Statement of Objections from the European Commission to which the Company will respond both in writing and at a Hearing.
As previously disclosed in the Annual Report 2011, the Company and PENAC were named as defendants in an action brought by Jaco Electronics, Inc. Additionally, PENAC has also been named as a defendant in the actions brought by Motorola Mobility, Inc. and T-Mobile USA, Inc. and in the action brought collectively by Target Corp, Sears Roebuck and Co, Kmart Corp, Old Comp Inc, Good Guys, Inc. RadioShack Corp and Newegg Inc. The Company and PENAC are in the process of attempting to settle with a number of these plaintiffs.
On April 19, 2012, the court denied the Defendants' Motions to Dismiss and the case has proceeded to active discovery.
As previously reported, Philips is conducting a review of certain activities related to the sale of medical equipment for potential violations of the U.S. Foreign Corrupt Practices Act (FCPA) in connection with an indictment issued by authorities in Poland in December 2009 against numerous individuals, including three former employees of Philips Polska Sp.z.o.o. The review has been reported to the U.S. Department of Justice and the U.S. Securities and Exchange Commission and Philips is cooperating with these authorities in connection with the review. The legal proceedings in Poland against the individuals are ongoing.
In the normal course of business, Philips purchases and sells goods and services from/to various related parties in which Philips typically holds a 50% or less equity interest and has significant influence. These transactions are generally conducted on terms comparable to transactions with third parties.
Related-party transactions are summarized as follows:
| January to June | ||
|---|---|---|
| 2011 | 2012 | |
| Purchases of goods and services | 95 | 124 |
| Sales of goods and services | 50 | 63 |
| Balance outstanding | ||
| July 3, 2011 | July 1, 2012 | |
| Receivables from related parties | 15 | 11 |
| Payables to related parties | 3 | 4 |
Philips made various commitments upon signing the agreement with TPV Technology Limited, related to the Television business divestment, to provide furtherfunding to the venture, as follows:
In addition, depending on the funding needs of the venture, Philips has committed to provide 30% of additional financing of EUR 200 million. This additional funding is considered to have only a remote possibility of occurring.
See also Discontinued operations and Other assets classified as held for sale for further details on the Television business divestment.
Share-based compensation expense amounted to EUR 44 million and EUR 29 million in the first six months of 2012 and 2011 respectively.
During the first six months of 2012 the Company granted 6,999,057 stock option rights on its common shares and 2,498,619 rights to receive common shares in the future (restricted share rights).
A total of 1,487,972 restricted shares were issued to employees. 185,195 EUR-denominated options and 89,024 USD-denominated options were exercised at a weighted average exercise price of EUR 12.63 and USD 16.94 respectively.
Under the employee stock purchase plans 1,069,581 shares have been purchased at an average price of EUR 14.91.
For further information on the characteristics of these plans, please refer to the Annual Report 2011, note 30.
In January 2012, the Company offered a further 4,022,000 performance stock option rights and 4,022,000 performance shares under the Accelerate! grant. USDdenominated performance options and performance shares are granted to employees in the United States only. The performance options ultimately vest on 31 March 2014 and expire 10 years after grant date. The performance shares ultimately vest on 31 March 2014, and after vesting an additional two-year holding period applies to the performance shares. The actual number of performance options and performance shares that will ultimately vest is dependent on the performance targets under the Accelerate! program, which are based on the 2013 mid-term financial targets, and provided that the grantee is still employed with the Company.
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